CHICAGO — Illinois entered the new fiscal year Tuesday with about $4.6 billion in unpaid bills and possibly another $1.1 billion expected in the coming months, according to data provided by Illinois Comptroller Judy Baar Topinka's office.
The state's bill backlog has fallen steadily in recent years after hitting a peak of $9.9 billion in 2010, but could climb again due to the General Assembly's failure to either extend the 2011 income tax hike that partially expires in January or to chop spending in the fiscal 2015 budget to make up for the lost revenue.
Moody's Investors Service warned in a recent commentary that the nearly $2 billion drop in income taxes could negatively pressure the state's already weak credit rating if its bill backlog grows.
The commentary was released in the wake of the General Assembly's approval of a $35.7 billion fiscal 2015 budget that did not make permanent the current tax rates, as proposed by Gov. Pat Quinn. The governor on Monday in signing various budget bills vetoed $250 million in spending.
To avoid deep cuts, the budget relies on one-shots like interfund borrowing and payment delays.
"As a result, Illinois could face a structural deficit that leads the lowest-rated US state to rely on credit-negative practices such as increasing an already large backlog of unpaid bills to achieve balanced financial operations, reversing significant progress of recent years," Moody's wrote. "Growth caused by unbalanced budget is credit negative." Moody's rates Illinois A3 with a negative outlook.
Quinn's three-year financial forecast released in January warned that if income tax rates decline and no offsetting actions are implemented, the backlog of unpaid bills would almost triple to $16.2 billion in the next three years. Quinn had proposed reducing the backlog to $2.2 billion in a five-year fiscal plan released with his recommended budget. That five-year plan relied on making permanent the existing tax rates.
Any increase also stands to impact other governments that rely on state aid. "Renewed growth in the backlog could put financial pressure on rated entities, such as public universities, awaiting payment from the state," Moody's wrote.
Lawmakers are expected to wait until Jan. 1, during a lame-duck session after the November election, to revisit a vote on the income tax issue, and possibly amend spending levels in the budget.
Illinois is rated A-minus by Fitch Ratings and Standard & Poor's. Fitch assigns a negative outlook and Standard & Poor's a "developing" outlook.